It raises alarm bells about worsening inequities within the U.S. job market. In November, the unemployment rate jumped to 4.6%, its highest level since September 2021. The big jump in October Retail Sales adds to worries of what the current state of our economy could be. Further confounded by other mixed signals, this data paints a pretty scary picture. The labor force participation rate ticked up to 62.5%. That demonstrates that more people are actively looking for work. Frequent revisions to payroll data and a continuing deceleration of wage growth tell a different story.
This year, the Federal Reserve has made bold moves to address such trends. They put through 75 basis points of rate cuts in order to support the labor market. Despite these positive efforts, every indicator shows that things are getting worse for workers. The individual components of the employment report have a huge impact on how markets react. Future expectations are guided by key things such as the Participation Rate and Average Weekly Hours.
Unemployment Rate and Payroll Revisions
The latter is the reason that the rise in the unemployment rate to 4.6% in November is so alarming to economists and policymakers across the board. This figure is a marked departure from the previous months’ figures and is indicative of broader labor market health trends towards a cooled economic climate. Additionally, the report revealed that U.S. payrolls underwent downward revisions by a combined 33,000 for August and September, further complicating the picture.
The October payrolls were a mixed bag. When contraction was reported, it was by 105,000. This result represents a significant reversal from the gain of 108,000 reported for September. Keep in mind that September’s first estimate was 119,000, later revised down, demonstrating the volatility and uncertainty that characterize today’s dynamic labor market. These oscillations do not just play havoc with consumer confidence; they could impact Federal Reserve policy-making decisions over the next several months.
Combined with the downward revisions in payroll numbers and the increasing unemployment rate, these early signs suggest that many parts of the economy are under considerable stress. As companies manage through this evolution, they will change how they hire. The impact on long-run economic growth is more uncertain than advocates would suggest.
Retail Sales Data Sends Mixed Signals
Beyond the jobs report, October Retail Sales numbers increased the uncertainty of a shifting economic environment. Headline sales were flat for the month, coming in well below market forecasts for a 0.1% gain. This stagnation has important implications for understanding consumer spending and its impact on overall economic growth.
The report showed that even if some sectors have stayed stable, others are having a hard time getting up and running. Average Hourly Earnings increased only 0.1% m/m, well below the 0.3% anticipated. The deceleration from last month’s 0.4% increase shows that wage growth is continuing to cool off. Annual growth just barely inched down to 3.5%, a decrease from 3.7%.
Such data points may be the tip of the iceberg, signaling deeper economic headwinds consumers are facing such as increased inflationary pressures and general cost of living increases. People have experienced substantial wage increases, though these are unable to match the pace of inflation. Consequently, consumer spending will likely fall further, aggravating an already horrible labor market condition.
Wage Growth and Participation Rate Trends
The labor force participation rate increased a bit, from 62.4% to 62.5%. This uptick is a sign that more people are getting back into the labor market. That should open up some hope for optimism on job creation. Yet, we should keep in mind that the net participation rate is still shy of pre-pandemic rates.
Additionally, wage growth has been decelerating further in November, putting its sustainability into question as inflation continues to bite. This deceleration in wage growth may have important implications for consumers and businesses. Weaker wage growth can weigh on consumer spending, which remains the workhorse of economic activity.
As the Federal Reserve pays close attention to these developments, navigating interest rates and promoting a more just economic growth is getting tougher. Before this cycle, the Fed had never cut rates to try to invigorate the labor market. Persistent troubles are likely to make the people taking those steps change their tune.